Section 13 inapplicable at registration stage u/s 12AB; limited to exemption at assessment. Grant based on charitable objects and genuine activities.

ORDER

PER MAHAVIR SINGH, VP:

This appeal by the assessee is arising from the order of the Ld. Commissioner of Income Tax (Exemptions), Chandigarh (hereinafter referred ‘CIT’) rejecting the application for registration of trust u/s. 12AB(1)(b)(ii) of the Income Tax Act, 1961 (hereinafter referred “Act”) vide his order dated 06.08.2025.

2. The brief facts of the case are that the assessee trust filed an application for registration u/s. 12(1)(ac)(vi) of the Act on 24.02.2025. The CIT required the assessee to file the documents complying the objects and genuineness of the trust.

The CIT wanted to verify the activities of the trust, whether the same are in accordance with objects and genuineness of its activities. Accordingly, the CIT issued show cause notice on 13.03.2025, which is a part of CIT’s order at pages no. 3 to 6 of Assessee Paper Book (hereinafter ‘APB’). The CIT on perusal of bank statement of the assessee noted that there are number of high value debit transactions in favour of the Members of the Society i.e. Sh. Anil Tayal, President and Smt. Shewta Tayal, Vic-President and Savita Tayal. He also noticed from the bank statement that there are several cash deposits and withdrawals in assessee’ bank account. He required the assessee to explain the debit transactions and cash deposits/withdrawals and how these transactions are related to charitable activities carried out by the society which are in agreement with the objects of the society along-with supporting documents. The assessee filed complete details which are reproduced in his order at page no. 8 & 9. The CIT considered the reply of the assessee, but noted that neither of the activities establish the charitable nature of the trust in regard to these transactions. The CIT reproduced the bank statement and the transactions entered into with the assessee society by Sh. Anil Tayal, Smt. Shewta Tayal and Smt. Savita Tayal. The CIT noted that the transactions entered by Sh. Anil Tayal in the books of the assessee’s trust is the first concern. According to him, the assessee trust being a charitable trust falling in education limb, but still the frequency of the transaction give rise to the conclusion that the assessee is a business entity. The CIT also examined the opening balance of Rs. 64,89,869/- in favour of Sh. Anil Tayal and according to him the payment of Rs. 92,50,000/- during the financial year 2024-25 and this clearly exceeds the recorded liability. According to CIT no explanation or supporting evidence was provided by assessee to justify this excess payment. Even the ledger account of Shweta Tayal and Savita Tayal remains unsubstantiated by any documentary evidences establishing the nexus between the genuine need of the trust and the loan raised.

2.1 The Ld. CIT also noted from the ledger of M/s Gargi Farms regarding rent payment and noted that the applicant relied on the arms’ length price of transactions and mode of payment through banking channel to establish the genuineness, but no other documentary evidence was provided. According to CIT the perusal of ledger accounts of M/s Gargi Farms shows that the rent payment is inconsistent as the rent decreased from Rs. 50,000/- to Rs. 20,000/- from financial year 2022-23 to financial year 2023-24 and in immediate next year the rent was increased from Rs, 20,000/- to Rs. 1,00,000/- for which no explanation was offered for variance rent. Accordingly, he reached to a conclusion that the activities performed by the assessee trust are neither genuine nor in accordance with the objects of the trust